Money is going digital, and the underbanked will be among the biggest beneficiaries

The future of money is programmable, and when we combine software and currency, money will become more than just a static unit of value

What will happen when the way we buy, sell, and pay for things changes? What if we remove our reliance towards banks or currency exchange bureaus? That’s the radical promise of a world powered by cryptocurrencies like Bitcoin and Ethereum.

It is no longer a riddle that needs to be solved anymore. YES! Money has changed its form and functionality over and over from commodity money to digital money. As the population has increased, some previously-used units of exchange have become unfeasible. We’ve made money more and more abstract in the pursuit of convenience.

Remember the time when our great grandfathers carried kilograms of gold everywhere to buy some groceries? How about the barter system that meant negotiating between a cow and 60 Kg of carrots? Those times are the epitome of value for money.

What is money, anyway?

However, our cash system is now much more abstract, and it is referred to as ‘fiat money’. But what is actually fiat money? In brief, it’s the paper money that we are still using, even now in 2017. However, analysts believe that fiat money will experience its downfall and will be replaced by digital money or currency. Both virtual currencies and cryptocurrencies are types of digital money.

Many countries have now made money even more abstract than the cash system that has dominated the past few centuries. Take Sweden for example — just 2 per cent of the economy is represented by physical money. The rest is viewed as ‘guaranteed’ in the same way that a circle of people can sit on each other’s knees.

Since the early days of the digital age, experts have hailed virtual currencies as the future of our civilisation’s money. While it may be difficult to imagine a cashless society, it’s important to understand that money is merely an agreement to use something as a medium of exchange.

The function and purpose of cash is, therefore, assigned by our cultural and social systems, not any intrinsic value. So as our society evolves, and our physical and digital economies converge, how does our monetary system evolve along with us? Whether exchanged via virtual words, social games or mobile applications, virtual currencies hold real implications for our global economy, fundamentally altering how we conduct transactions with one another.

Emerging trends

To better understand the virtual currency landscape, we might observe four broad trends emerging: mobile fiat currency, corporate value currency, virtual world currency, and peer-to-peer currency. Although the nuances of these categories may blend together, I draw distinctions at their core function — why and how the currency is created, circulated, and adopted.

Mobile fiat currency allows consumers to send and transfer legal tender using their mobile phone. Now, people can easily pay with Square by swiping a credit card through a plug-in device on iPhone.

However, if you want to really see the mobile payment in widespread practice, look no further than India, where the lack of credit card penetration has brought mobile innovation to the forefront. India is home to the world’s largest unbanked adult population with 420 million out of the two billion adults without bank accounts live in India. Thus, even they do not own bank accounts, so how credit card could become popular in India.

Another type of mobile fiat currency involves “carrier billing” whereby consumer pays using their phone numbers rather than their credit card number and the charges are billed directly to their phone bill.

Corporate value currencies are rewards or credits that are acquired by engaging with a company or participating in loyalty program. Corporate value currencies are often associated with the gamification movement, helping people quantify their progress and unlock new achievements. Denominated in points, mileage, badges and credits, these currencies are inextricably tied to a company’s product or service, rather than official tender.

Presently, with digital currency turning out to be more pervasive than ever, it’s an ideal opportunity to investigate how digital money cash is changing the way we spend money today:

Increased spending. Many individuals who like having something tangible, or have issues evaluating abstract things will most likely spend nonsensically later on. Take a look at Malaysians, particularly their credit card utilisation. Malaysians failed to make credit card payments causing 4 percent of the population going bankrupt between year 2007 until 2013. Fifty-eight per cent of them age from 26-35 years old, and fresh graduates like to spend on luxurious things such as mobile phones and shopping excessively.

The economy is more efficient. This one’s pretty straightforward. Imagine being a bookstore owner who is no longer has to contend with the cash register and giving back change. There is speculation that our cashless money systems will someday provide access through unique identifiers such as our fingerprints or iris.

Digital money will help the poor protect their money. In most countries, banks are only accessible to those who have enough money to maintain accounts. Otherwise, it is hard to protect funds. Digital wallets and payments will help the underbanked retain their moeny and earnings. In Kenya, this is important. Estimates suggest that 60 per cent or more of commerce there takes place using mobile phone credits as a medium of exchange. While the phone can be stolen, the money cannot be accessed. Such security encourages people to spend more of their money rather than protect it through physical means.

We’re about to enter a new phase of money

The future of money is programmable, and when we combine software and currency, money will become more than just a static unit of value. Plus, we don’t have to rely on institutions for security. In a programmable world, humans and institutions will be removed from the loop, and transactions will become significantly different. Money will be directed by the software and will arrive securely at its intended destination, unlike physical money which can get lost or stolen along the way.

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